This solution addresses some of the Securities and Exchange Commission (SEC) amendments to money market mutual funds. TFS constructed a treasury data-mart (TDM) and enhanced its client relationship management (CRM) tool to more efficiently source, diversify, and consistently provide competitive funding without jeopardising the liquidity risk profile of the business.

The challenge:

TFS is a frequent issuer in the capital markets with investment advisors and the money market assets they manage being a significant source of funding. As such, increased scrutiny of issuers utilising wholesale funding markets and the regulatory changes being implemented impacting these activities – namely the Securities and Exchange Commission (SEC) amendments to money market mutual funds – could negatively affect TFS’ funding and liquidity position. “Though the SEC amendments will not take effect until 2016, TFS has begun implementing strategies to better monitor, manage, and diversify its funding sources,” says Darren Marco, Manager, Treasury at Toyota Financial Services. “The goal is to ensure differentiated channels of wholesale funding are not overly reliant upon a single pool of assets, moreover, one that could diminish due to regulatory policies.”

The solution:

TFS constructed a treasury data-mart (TDM) and enhanced its client relationship management (CRM) tool to more efficiently source, diversify, and consistently provide competitive funding without jeopardising the liquidity risk profile of the business.

At the highest level, the centralised data depository and improved client relationship management tool provides treasury with a live snapshot of the three commercial paper programmes the desk manages in Torrance, California. The new tool offers a real-time assessment of the portfolio health, eg liquidity strength, which can be measured against a number of metrics ensuring funding remains well-diversified.

Having a consistent view into the weighted average maturity of outstanding balances, funding distribution across the curve, funding spread against various benchmarks, and active investors, allows the desk to quickly make decisions on pricing and assure optimal execution for both TFS and our investors. More importantly, the tool aligns with the Basel III measures on how to measure and manage liquidity risk.

Though TFS is not a bank, much of the criteria set forth in Basel guidance remain relevant to TFS. As Principle seven on the measurement and management of liquidity risk states, “a bank should establish a funding strategy that provides effective diversification in the sources and tenor of funding.”

One of the most important metrics the desk utilises to assess the health and effective diversification of their short-term funding platform is active investor count. Shortly after launching the revamped CRM tool, with a new staff that had an average tenure of less than one year, their active investor account increased by 20%.

Additionally within the CRM suite, views were constructed to monitor upcoming status changes, assess the probability of investors reinvesting commercial paper maturities and determine which investors to best target should specific funding needs.

Best practice and innovation:

The end result was treasury making more critical funding decisions with an influence on how to manage the portfolio to meet guiding liquidity principles.

The SEC amendments to money market funds will have lasting effects on issuers and investors alike. For TFS, its reliance on the pooled assets currently managed by investment advisors in these fund complexes is an immediate concern as investors could begin to shift away from credit based investment vehicles.

“Anticipating these changes and monitoring and managing our funding accordingly are the priority as we enter a period of high uncertainty,” Marco adds. “Dedicating resources to improving our CRM capabilities now is prudent so that we enhance our understanding of how specific investors behave during various market conditions or Toyota specific events.”